“By hitting companies and individuals in the pocket where it hurts, the fines will be a stark warning to others on what they can expect to pay for flouting our rules.

“Moving to this new framework will enable our enforcement policy to continue making a real difference to consumers and to changing behaviour in the financial services sector.”

The FSA set out its proposals ahead of this week’s announcement from Chancellor Alistair Darling on his plans to tighten regulation.

Cole said the new scale of fines reflected the FSA’s determination to change behaviour and address concerns that firms are repeatedly failing to improve standards.

Under the proposals, subject to consultation and likely to come into effect next February, a company can forfeit up to 20 per cent of its income from the business linked to the breach. Individuals risk being fined 40 per cent of their salary and bonus in non-market abuse cases and a minimum fine of £100,000 in market abuse cases.

The biggest fine imposed by the FSA was £17million against Royal Dutch Shell in 2004 for market abuse. Under the new regime that would be £51million.

In March FSA chief executive Hector Sants warned that “people should be very frightened of the FSA”. Calum Burnett, head of banking and finance litigation at law firm Allen & Overy said: “The FSA had been coming to this view even before the credit crisis that it needed to do more to ensure that its fines act as a deterrent.”